Chicago is taking drastic measures to reduce its deficit

It may be apt that Chicago is known as the Windy City, as its government is facing significant headwinds when it comes to the city's budget deficit. Now, Chicago's city hall is attempting to take measures to reduce this deficit, which is estimated to reach nearly $1 billion in 2025.

The looming deficit is "going to require decisions that will speak to our overall collective desire to build an economy that works for working people," Chicago Mayor Brandon Johnson said to reporters, adding that "sacrifices will be made." Several of these sacrifices have now been clarified by the city, but questions over the effect it will have on Chicago's budget remain — as well as questions over what financial lessons can be learned.

What is Chicago doing to reduce its deficit?

Chicago is "taking immediate steps to mitigate the projected FY2024 budget deficit and to address the anticipated budget gap for FY2025," the city's budget director, Annette Guzman, said in a statement. This includes a series of budgetary restrictions such as a "citywide hiring freeze and stringent limitations on non-essential travel and overtime expenditures outside of public safety operations." Guzman noted that the 2025 budget shortfall — expected to be $982.4 million — is "largely driven by rising personnel, pension and contractual costs, alongside ongoing revenue challenges."

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Notably, at the time the budget shortfall was announced, the mayor "did not say exactly how he planned on closing the gap, including raising property taxes, authorizing legalized video gambling in the city or approving the placement of slot machines in city airports as ways to raise new revenue," said CBS News. Issues surrounding additional taxes are pertinent given that a "big part of the deficit comes from shortfalls in the personal property replacement tax (PPRT) collected by the state and distributed to local governments," said Axios. PPRT funds to Chicago are "expected to drop by $169 million in 2024 and fall even further next year when the law will allow some companies to significantly reduce their tax burden."

It seems not everyone in the city is satisfied with these ideas, particularly any tax increases. It is "important that the city looks for every resource to make sure we balance the budget without sacrificing important services for the city and especially not burdening working-class families," Chicago Alderman Byron Sigcho-Lopez said to CBS.

What's the bigger picture?

Mayor Johnson is "trying to make good on his progressive social and economic campaign promises while grappling with the city's challenging finances," said Bloomberg, and he is slated to outline the city's full budget in the coming months. He is "confronting similar issues as his predecessor, Lori Lightfoot, [who] implemented a hiring freeze when she addressed back-to-back shortfalls fueled by jumps in the city's mandated pension payments early in her term."

But Chicago is not the first city to face these challenges and could take lessons from other cities in similar situations. In 2022, Milwaukee was "on the verge of financial collapse" with a massive deficit and "possible bankruptcy on the horizon," said consultancy EY-Parthenon. The city was "able to document the local actions it was exploring and could demonstrate to members of the Wisconsin Assembly the mayor was taking steps to fix the situation."

Milwaukee's "comparison with other cities and a methodical accounting of the cost-cutting initiatives the city government had already undertaken helped demonstrate to legislators, the business community and the public that the politically difficult decision to raise taxes was likely unavoidable," said EY-Parthenon. This could become a similar path as Chicago works to dig out from its own deficit.